ABI Research Analyst: RFID Market "Exciting"

ABI Research recently released a study that looks at the evolving market for RFID integration services. Its premise is that greater RFID adoption has moved beyond the first steps of pilots and compliance testing.

August 18, 2005—ABI Research of Oyster Bay, New York, recently released a study that looks at the evolving market for RFID integration services. Entitled "RFID Integration Services Markets", the study's premise is that greater RFID adoption has moved beyond the first steps of pilots and compliance testing. Increasingly, companies deploying RFID are now looking for ways to turn the newfound RFID data into actionable, ROI-generating information.

RFID Update spoke with Erik Michielsen, ABI's Director of RFID and Ubiquitous Networks and author of the report. Michielsen characterized what is going on in the RFID space as "exciting." Despite what many have perceived as a lull in the marketplace, he says adoption is "moving along at a pretty good clip" with "a lot of movement in the background." While the industry is still very much in its early stages, it is starting to transition its focus away from hardware and towards making and saving money using the technology. That is, end-users are starting to reach towards the great promise of RFID: transformative business processes that yield meaningful benefits.

According to Michielsen, end-users are turning primarily towards smaller RFID integrators that are flexible enough to work closely and figure out how RFID can be deployed and add benefit to an enterprise's supply chain. For the last few years, large IT services firms have been unable to justify active participation in RFID integration. It has been too costly for big integrators to dedicate consultants to learn and develop RFID deployments for end-users because the projects were simply too small. Aside from notable exceptions like IBM's work on the METRO deployment, it has been "small boutique firms that step in there and work at those compliance-level initiatives."

That will change, however. As the report discusses, end-users -- with the aid of the smaller integrators -- have started figuring out how exactly where RFID can benefit their organizations and now will look to do increasingly comprehensive integrations of the technology. Integrations of this scale are a core competency of the larger IT firms, who will now be incented to come off the sidelines and compete for RFID business. "Moving forward," says Michielsen, "end-users are likely to work more closely with bigger players that are capable of rolling out broader RFID platforms, at the enterprise level."

Resources and reliability are two key ingredients where small companies have a hard time competing with IT firms that have many thousands of employees. So what will become of the boutiques? Some will look to establish a niche of RFID expertise that is too small to be worthwhile to the bigger players. They may then partner with the big firms to offer that expertise on a per-job basis. "Some small companies are already looking for relationships [with big integrators] to stay relevant in the marketplace," according to Michielsen. Others will be acquired, and still others will go out of business. There is also the possibility of private equity roll-up activity, in which a financial concern merges together a handful of RFID firms to build a team that can compete for enterprise-wide RFID deployments with the likes of IBM, SAP, Sun, etc. Finally, he noted, there will always be compliance projects that provide "good business" to some small RFID integrators.

Whatever happens, expect the market to be very dynamic over the next couple years. "The competitive, complementary, and coorperative nature of this market is developing as we speak, and it's quite an exciting space," Michielsen said.